A mortgage is the use of the property to obtain a low-interest long-term loan, it is still widely used in the United States.
But then, why do we abandon this means of guarantee? What makes it a less interesting option for those seeking credit? These and more questions will be answered throughout this article.
What is a property mortgage?
As stated before, a property mortgage is about using the property as collateral for a transaction to obtain a low-interest, long-term loan. This is more likely to be approved than personal credit.
Although it is a business model much sought after by people who live in the United States, especially by those of older age, it did not go very far in the United States. Since it involves several legal barriers and makes the operation inefficient and unprofitable.
It is worth mentioning that the property mortgage is different from the home equity modality. Although the principle seems the same, its objectives, forms, and rules are quite different.
This is also a factor that makes many people look down on secured credit. In addition to the fact that its predecessor was unpopular with the public. Many banks advertised the service negatively as if the purpose of the service was to get people’s homes.
Every bureaucratic process is not pleasant, both for individuals and legal entities, especially in the American Market where abusive taxes are enough to make someone think twice before creating their own business.
What is the difference between a mortgage and a secured loan?
Both a home equity loan and a mortgage are used to transfer property for collateral purposes in exchange for a line of credit.
However, in the first, the beneficiary transfers his property to the financial institution as a guarantee, with the creditor retaining the property until the loan debt is fully paid off.
Thus, the creditor becomes the indirect possession of the asset, while the installment plan remains with direct possession.
It is as if the property served as an incentive for the client to fulfill his word that all the loan installments will be paid, as there will not be many options left. This is a form of security for the banking company and also for the customer.
What is a first and second-degree mortgage?
As stated in our legislation, it is possible that the same property will be offered as collateral for more than one debt. That is, a single house can serve as collateral for different creditors, in different values.
Each mortgage is associated with a different grade, which will depend on the number of institutions that are associated with the property.
In practice, the preference of possession in case of default by the debtor will be the first company whose credit negotiation was carried out. Therefore, this turns out to be another risk factor for companies that worked with this model.
At the time of registration of the second mortgage, if the first has not been registered, it will be the duty of the Real Estate Registry officer to cite the first creditor so that he can present his documents.
If this does not occur within thirty calendar days, then the second will have the rights of the first, including preference in case of non-compliance with the contract.
How to take out a mortgage?
Below you can see the step-by-step guide on how to take out a mortgage:
- First, you must register with the Real Estate Registry Office;
- The possibility of insurance must be evaluated. Thus, the insurance will cover losses that may occur due to natural factors, such as fire, theft, and storms;
- The mortgage record is linked to the property until the entire debt is paid off;
After the debt has been paid off, the creditor requests permission to write off the mortgage, which must be submitted to the Real Estate Registry. At the registry office, the property must be released.
How to choose between mortgage and other means of borrowing?
In order to choose which option will best fit your situation, you need to follow a few steps. While the mortgage is useful, that doesn’t mean it’s always the best option. So, before making this decision, take the following precautions:
Do a search
However, it is still possible to find one that still offers it. Search search engines about these and their reputations, seeing some reviews from past customers.
Check the professional trajectory, some complaints, and analyze whether people are satisfied with the service provided to them.
This can all be easily collected on the internet in an easy and simple way.
Check the fees involved in the mortgage
After filtering the organizations that offer this type of service.
It’s time to study about the interest rates that are involved in this transaction. It is very common for financial companies to make this information available on their websites, for example.
See if the taxation is being consistent with the market and immediately discard any that cover abusive amounts in relation to the transaction. Preferably, also, for ventures that offer you advantages.
Review all fees
Anyone who believes that this type of negotiation should only pay attention to taxes is wrong. There are several fees that involve credit, and they are charged by those who offer such a service.
Ask the company what the Total Effective Cost of the debt you are about to acquire. In this amount, it will still contain all mandatory insurance and taxes embedded in its installments.
Is it worth taking out a secured loan?
The secured loan is one of the most suitable lines of credit, since, in addition to having low-interest rates, it offers one of the longest payment terms, and the amount to be received for the loan is quite high.
Still, many people are apprehensive when it comes to putting the property as collateral.
It is always good to remember and repeat that the bank does not intend to take your property. There are a few ways to do it and auction rates are low.